In contested divorce cases, it is not unusual for one spouse to believe that the other spouse has concealed the existence of cash, investments, or other types of assets.
Why spouses get suspicious about hidden assets when their marriage is breaking down.
When a marriage begins to unravel, one of the first things to go is the trust between spouses. This is particularly true when it comes to trust about money management. When spouses lose trust in each other, they may become suspicious and anxious. The breakdown of a marriage can be scary. One reaction to fear and anxiety about financial security is to begin to hide money. Here is a sampling of things, which might trigger the suspicion on your part that your spouse is hiding money in the form of cash, investments, and secret bank accounts.
1. While going back through personal bank account statements, you may discover your spouse withdrew large amounts of cash without talking to you about them.
2. A friend may tell you your spouse called to ask about opening a bank account in another state – or even offshore.
3. While going through your financial records, you may discover literature from the Cayman Islands or the Isle of Mann describing how to open offshore trusts to avoid U.S. taxes.
4. You may get a notice from a credit card company about a new credit card your spouse opened shortly before you separated.
5. You may discover your spouse is having an affair and find credit card statements showing trips without you to Las Vegas or Reno.
These are just a few examples.
Unfortunately, proving the existence of hidden assets may be difficult unless you can find evidence to support your belief. Fortunately, most family law attorneys know where to look to find hidden assets. But there is a lot you can do to start the search for hidden assets yourself.
What you can do to look for hidden assets even before the divorce starts.
There are a number of places you can start your search for hidden assets. Here are a few places to start:
1. Applications for loans and financial statements.
When someone applies for a loan, the lender typically requires the borrower to fill out a financial statement showing a list of and values for personal property, real property and financial accounts. You should obtain copies of any financial statements you are your spouse filed for the past five years- even if you signed the financial statement. You will want to have these in hand when your case starts.
2. Personal income tax returns.
The initial disclosures require spouses to exchange three years of federal personal tax returns. This is probably too short a time frame. Going back at least five years could reveal sources of interest or dividends you did not know. Even if you file a joint return, you may not look over every line item on the return- particularly if you pay a tax preparer or CPA to prepare your return.
Schedule B. Interest and dividends are reported on Schedule B, unless the amounts are small.
Schedule C. If your spouse operates a business as a sole proprietor, you should also go through the Schedule C, which is where the revenues and expenses of a sole proprietorship are reported.
Schedule D. The sale of investments (non-retirement) are reported in the year of the sale on Schedule D.
Schedule E. Income from partnerships, trusts, rental property.
3. Personal and business bank statements, canceled checks and other financial information from banks, credit unions, brokerage firms and mutual funds.
Banking information may reveal large ATM or cash withdrawals. Even seemingly innocuous debit transactions at places like Fred Meyers may reveal a spending pattern, which does not make sense to you.
4. Children’s savings accounts.
Don’t forget to look through your children’s savings or other bank accounts for large cash deposits.
5. Sign in ledgers for safe-deposit boxes.
If you and your spouse have a safe deposit box, your bank should have a ledger, which it requires either of you to sign and date before you can access the safe deposit box. You should check the ledger to see if your spouse is accessing the safe deposit box more frequently than you were aware of.
6. Journals, notes, scraps of papers and the contents of files or boxes in storage units or in the home, garage or storage shed.
You should go through the papers in the home (hopefully before separation) to see if your spouse has kept notes, brochures, literature or files on offshore trusts or any type of tax-avoidance scheme. You may even find deposit slips or bank statements from bank accounts your spouse opened without telling you anything about what he or she was doing.
What you can do to help your attorney look for hidden assets after the divorce has started.
Once your divorce case has been filed, you should carefully go over the initial disclosures you and your spouse exchanged. Compare your list of assets with your spouse’s list of assets. Check for substantial differences in values. Check for discrepancies in your lists. In addition to comparing the initial disclosures, if you obtained financial statements or loan applications, you should look at them carefully. Financial statements can provide useful clues for finding hidden assets.
You may be surprised to see assets listed on a financial statement, which are missing from your spouse’s initial disclosures. If you do not recall what happened to an asset between the date of the financial statement and the date of the disclosures, this should be a red flag for you. If you see a large discrepancy between the value at which an asset is listed on a financial statement and the value it is listed on your spouse’s disclosures this should be a red flag for you.
Most borrowers want to appear to be creditworthy. Looking back five years or so for loan applications could put you on the trail of assets which have not shown up on your spouse’s initial disclosures disclosures. The financial statements may also shed light on the value of the assets that were listed – particularly if the financial statement is fairly recent and the value of an asset on the financial statement is substantially greater than the value at which your spouse has listed the asset in the initial disclosures.
Be sure to keep notes on what you find. Discuss the results of your research with your lawyer.
Whatever you do, do not talk to your spouse about missing assets or accuse your spouse of hiding assets.
This is not the time to confront your spouse or get into arguments about missing cash or other property. You will need to be patient and operate in “stealth mode.” Resist the temptation of engaging with your spouse. Make a list, schedule an appointment and talk to your lawyer.